Bad Debts: When To Refer Them To A Debt Collector

As a business owner it can be difficult to know when to refer an unpaid account to a debt collection agency. While the temptation exists to hold on to your debts in order to avoid upsetting customers as well as avoid paying collection fees and commissions, the reality is that the older a debt becomes the less likely you or anyone else are going to ever see a cent of it. As such there comes a time when pursuing a debt in-house becomes more expensive than referring that account to a debt collector.

The age-old question then is, “How Do I Know When To Refer A Debt To A Debt Collector?”

As nice as it would be to give you a specific length of time the truth is the best time to refer a debt actually depends on both the individual debtor as well as your business.

As such, the best way to work out this threshold is with a tried and tested dynamic system. Such a system must simultaneously perform two critical tasks.

Firstly, this system must facilitate rapid and amicable recovery of the debt in such a way that accelerates cashflow without upsetting your good customers.

Secondly, and arguably more importantly, this system must accurately weed-out ratbags early so that you can refer these debts while they’re still young. And as as young debts are orders of magnitude easier to recover than old debts, by referring early your chances of full and fast recovery will skyrocket.

So What Does This System Look Like?

In essence it utilizes a simple yet powerful three step formula.

Step 1. A Friendly Tap On The Shoulder: As soon as an account becomes overdue you must send them a carefully crafted Collection Reminder Letter.

Step 2. {Courteous Nudge}: Should your debtor fail to either pay their account in full or alternatively set-up to a repayment program within 7 days of receiving your reminder letter then you must call them on the phone.

Step 3. {An Assertive Demand}: If they subsequently ignore your requests for payment or alternatively they fail to honor their repayment plan then you send them a Final Demand Letter.

If after this second letter the debtor still neglects the account then that’s all the evidence you need that you’re now dealing with an individual who has neither any morals nor any intention to pay. At this point there’s nothing more for you to do other than pass this debt on to a Professional Debt Collection Agency immediately.

Now if you’ve listened to so called experts and you’re in the habit of sending out a series of reminder letters, this rapid-fire 3 step system will probably seem heretical.

However, what’s important to remember is these three communications are all any good customer needs to settle their account. Every one else poses a clear and serious risk to your business.

And if they’re a risk to your business it’s a safe bet they’re also a risk to dozens of other businesses.

Furthermore, if these creditors are like most businesses, they won’t have any sort of system to quickly identify and subsequently deal with dubious debtors. So while those businesses continue to drag their heels, you’re taking early and persuasive steps to recover your money.

And in a classic case of the squeaky hinge gets the oil, because you’re the first one to put the heat on your debtor, you’ll be the first one they’ll pay.

But more importantly, because you’re the first in line to get paid, the chances they’ll have the means to settle your debt are infinitely greater than if you were the last in line… when what little funds they may have had have all been exhausted paying everyone else.

Bottom Line: Sticking to this formula by the letter will skyrocket both the number of recovered accounts as well as the speed with which you recover them. It all stems from the irrefutable truth of bad debts… “The faster you recover your debts the more money you’ll pocket!“